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ECONOMIC MONITOR: CAMBODIA

Dangerous Liaisons

With little effort to root out corruption and foster reform, tourism will remain the mainstay of the economy

By Bertil Lintner

After decades of civil war and isolation, Cambodia is rapidly becoming a favourite destination for foreign tourists. Some 790,000 foreigners visited the country in 2002, and the number is expected to rise to a million this year with a target of 2.2 million set for 2006. If that materializes, the tourism industry will in three years' time bring in revenues of $1 billion, a staggering figure for impoverished Cambodia, whose total GDP now is worth around $3.5 billion.

On the bright side, families and group tours visit the ancient Angkor Wat temple complex in the northwest, flying directly to the nearby town of Siem Reap and bypassing the lawless capital, Phnom Penh. New hotels and restaurants are springing up almost daily in and around Siem Reap.

On the more sinister side, the flow of tourists is also bringing in thousands of Western paedophiles, who take advantage of Cambodia's weak law-enforcement machinery. Prostitution and drug abuse have also led to the highest HIV/Aids infection rate in Asia. According to UNAIDS, 160,000 Cambodians aged between 15 and 49 have HIV, or 2.6% of a population of just 12 million.

Aids has so far killed about 90,000 people since it was discovered in Cambodia in 1991. Another 200,000 people are expected to develop Aids within the next 10 years, overwhelming the country's grossly inadequate heath system and seriously affecting economic growth as mostly young people succumb to the disease. The epidemic is already being called "the new killing fields," a reference to the bloody years in the late 1970s, when the murderous Khmer Rouge killed hundreds of thousands of Cambodians.

Rampant corruption and incompetent courts will also hinder growth, according to a statement by UN envoy Peter Leuprecht in November. The situation is also providing opportunities for people-trafficking, money-laundering, prostitution and trade in small arms and illegal narcotics, Leuprecht added. International donors, who finance about 60% of the country's annual budget, have criticized the government for its sluggish pace in reforming the judiciary and curbing corruption.

Nevertheless, Cambodia is experiencing modest growth in overall investment, totalling $243 million in 2002, up from $232 million in the previous year. Of that, local businessmen contributed $104 million while foreign investment dropped to $139 million from $162 million in 2001. South Korea tops the list of foreign investors with $73 million worth of approved projects, mostly in the telecommunications sector. On the other hand, the garment industry--a crucial foreign-exchange earner that contributes 12.5% to GDP and employs 200,000 workers--has seen almost no increase since 2001. Exports are critically dependent on United States and European Union markets, where demand has yet to recover from the recent economic downturn.

Cambodia's timber industry is also in trouble after the government in January expelled Global Witness, an environmental group that was monitoring efforts to combat illegal logging. As a consequence, aid to the country's forestry programme from the International Monetary Fund and the World Bank has been stalled amid concerns over high-level government involvement in illegal logging. About 70% of the country was forested in the 1970s but Global Witness estimates that the figure is now down to 30% at most.

This article first appeared in the Far Eastern Economic Review, March 13, 2003

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